Instruments of interest
Draft Data Reporting Services Regulations 2023
Draft Public Offers and Admissions to Trading Regulations 2023
Draft Securitisation Regulations 2023
9.These three sets of draft Regulations would enable the replacement of Retained EU Law (REUL) in various areas of financial services regulation. The overall approach, as provided for in the Financial Services and Markets Act 2023, is that Parliament sets the framework for the new regimes and empowers the Financial Conduct Authority (FCA) to establish the detail of the rules following further consultation.
10.The draft Public Offers and Admissions to Trading Regulations 2023 would replace REUL in the area of prospectuses, which governs the offering of securities to the public and admitting securities to trading in the UK. HM Treasury (HMT) states that the new regime will be more efficient, will improve the quality of information available to investors and will facilitate wider participation in the ownership of public companies. Proposed changes include making the operation of a securities-based crowdfunding platform a regulated activity and extending the prospectus regulation to cover investments offered through a crowdfunding platform. Other crowdfunding activities—for example, seeking donations for a legal action—would not be covered by this regulation, and nor would investment offerings under £5 million (although these would, as now, be subject to financial promotions rules). HMT says that the intention is to ensure that ‘non-transferable debt securities’ (also known as mini-bonds) are subject to prospectus regulations, following the review into the collapse of London Capital and Finance.7
11.The draft Securitisation Regulations 2023 would replace REUL in the area of securitisation, which is the pooling of various exposures, such as loans or mortgages, to form a financial instrument that can then be sold. This allows lenders to transfer risks to other banks or investors. Proposed changes include removing non-UK Alternative Investment Fund Managers from the definition of institutional investors, thereby removing a disincentive for them to invest in UK securitisations, and moving the regulation of securitisations provided by occupational pension schemes from the Pensions Regulator to the FCA.
12.The draft Data Reporting Services Regulations 2023 would replace REUL relating to Data Reporting Services Providers, which are financial market infrastructure companies that facilitate investment firms’ regulatory reporting and ensure market data is accessible. HMT states that the instrument mainly restates provisions in REUL. Changes include to encourage the emergence of a ‘consolidated tape’, which is a collation of trading data from a variety of sources into a continuous, electronic, live data stream.
Draft Misuse of Drugs Act 1971 (Amendment) Order 2024
13.This draft Order would add 20 drugs to those controlled as Class A, B or C under the Misuse of Drugs Act 1971, so that possession of these drugs would become an offence and more stringent penalties and enforcement provisions would apply than at present. In 19 of the cases the move follows advice from the Advisory Council on the Misuse of Drugs (ACMD). In the remaining case, cumyl-PeGaClone, the Government is controlling the drug as an interim measure while other steps, recommended by the ACMD, are progressed.
14.The Home Office says the prevalence of cumyl-PeGaClone is “low” and that the other 19 drugs also have a “low detection rate”. However, the Home Office also confirmed to us that 14 of the drugs are ‘nitazenes’. Media reports have described nitazenes as “super-strength” drugs linked to at least 54 deaths in the UK in the last six months and suggested that there has been a “sudden spike” in fatalities.8 The Home Office told us that, as well as controlling the 14 specific variants as Class A drugs through this Order, the Government will consult on and then legislate for a ‘generic control’ on nitazenes. We welcome this work and encourage the Home Office to progress it in a timely manner.
Draft Wine (Amendment) (England) Regulations 2024
15.These draft Regulations would prohibit the marketing of a wine as “ice wine” and the use of similar descriptions unless the product is wine made exclusively from grapes naturally frozen on the vine. The Department for Food, Environment and Rural Affairs (Defra) says that this is needed to fulfil obligations on the marketing of wine in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The UK signed the Protocol of Accession in July 2023. The instrument would also update restrictions and practices in wine making that flow from the UK’s membership of the International Organisation of Vine and Wine.
16.The changes proposed by this instrument will apply in England only. We raised concerns previously about the impact on the UK internal market where changes in the wine sector are made in relation to England only.9 Defra explained that in this case, Scotland and Wales “are progressing their own SIs [Statutory Instruments] to mirror this SI and make the same changes there”, so the same rules will apply across Great Britain (GB). Northern Ireland (NI), however, will remain subject to EU law. Asked about the impact on trade of different rules applying in GB and NI, Defra said:
“[W]e do not expect this to adversely affect trade between NI and England, Scotland and Wales or for imports from NI to undermine the new rules that will apply in England, Scotland and Wales. Although the EU may not have the same rules on ice wine as those that will apply in England, Scotland and Wales, Article 7 of Regulation (EU) No 1169/2011 of the European Parliament and of the Council on the provision of food information to consumers (fair information practices) prohibits the use of misleading information, including in relation to its method of production. In addition, Article 36(2) of that Regulation (voluntary food information) prohibits the provision of ambiguous/confusing food information. Wine marketed as ice wine in NI will need to comply with those requirements. Ice wine labelled for the GB market and sold in NI will comply with relevant EU rules. Article 7 of European Regulation (EU) No 1169/2011 on the provision of food information to consumers prohibits the use of misleading information. Because of that, we would expect wines marketed as ice wines in NI that are moved to England, Scotland or Wales would comply with the new rules that will apply in those countries.”
Branded Health Service Medicines (Costs) (Amendment) (No. 2) Regulations 2023 (SI 2023/1307)
17.Any supplier of licensed branded medicines to the NHS is subject to a statutory recoupment scheme unless they opt to join the voluntary scheme. Both schemes aim to reduce costs to the NHS by requiring companies to pay back a set percentage of their sales to the NHS. This instrument sets the payment percentage in the statutory scheme as 21.9% for 2024, 24.0% for 2025 and 26.8% for 2026 (all lower than the current 27.5%). The instrument also aligns the statutory scheme with the voluntary scheme to encourage innovation, maintain patient access to new medicines and address pandemics by making:
- an exemption from scheme payments for 36 months for sales of medicines containing a new active substance;
- an exemption from scheme payments for sales of centrally procured vaccines where certain criteria are met; and
- an exemption from scheme payments for sales of medicines occurring as exceptional central procurements where certain criteria are met.
18.The Impact Assessment states that these changes are likely to increase pharmaceutical companies’ profits by between £5,080 million and £5,930 million but maintain sales growth at no more than 2%.
Code of Practice (Reasonable Steps for Trade Unions) Order 2023 (SI 2023/1333)
19.This Order brought into effect the Code of Practice on Reasonable Steps to be taken by a Trade Union (Minimum Service Levels) (the “Code”) on 8 December 2023. The Code assists trade unions in the performance of their obligations under the Strikes (Minimum Service Levels) Act 2023 and provides advice on how to ensure that their actions do not breach the law.10 The Code was approved by the House of Commons and the House of Lords on 28 November and 6 December 2023 respectively, with the House of Lords passing a regret motion on the Code.11 The only purpose of this Order is to bring the Code into effect following its parliamentary approval. The Order does not make any changes to the Code or impose new obligations on trade unions.
Misuse of Drugs (England and Wales and Scotland) (Amendment) (No. 2) Regulations 2023 (SI 2023/1345)
20.Amongst other changes, these Regulations enable paramedic and radiographer ‘independent prescribers’ (those who have completed advanced training) to prescribe certain controlled drugs, and specified podiatrists to supply three controlled codeine products. The Home Office states that the aims of these changes include improving NHS efficiency—for example, because qualified paramedics will not have to refer to other clinicians to prescribe the relevant drugs—and enabling patients to have faster access to the appropriate treatments. The Advisory Council on the Misuse of Drugs (ACMD) has recommended all the changes.
21.The ACMD advised on the proposals relating to paramedics in October 2019, and on those relating to radiographers in April 2020. The Home Office told us that the subsequent delay in implementing the measures has been because they were “de-prioritised during the Government’s response to the COVID-19 pandemic”.
22.The original Explanatory Memorandum (EM) for these Regulations was particularly poor. For example, it lacked any explanation of why the changes are being made, included several unexplained terms that a non-expert reader may not understand and did not set out why there has been a long delay in implementation. The Home Office has relaid the EM, but it should not require our intervention for the EM to meet basic standards of adequacy.
Insurance and Reinsurance Undertakings (Prudential Requirements) (Risk Margin) Regulations 2023 (SI 2023/1346)
Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023 (SI 2023/1347)
23.These two sets of Regulations change the calculations that determine the amount of capital that insurers need to hold to cover their liabilities. The reforms modify the EU-derived regime, known as ‘Solvency II’, which will be replaced by a domestic regime expected to be in place by the end of 2024. The Regulations have the effect of substantially reducing required capital. HM Treasury (HMT) reports evidence that capital requirements are currently too high, reducing insurers’ flexibility to invest in longer-term productive assets such as infrastructure, raising the cost of capital and impacting pricing. However, HMT states that the reforms “should not materially impact the level of policyholder protection”, which still includes a requirement to hold enough capital to withstand a 1-in-200-year shock.
24.SI 2023/1346 reduces the ‘risk margin’, which insurance firms must hold to ensure they are able to transfer their liabilities to another insurer if required, by around 65% for long-term insurers and 30% for general insurers. HMT says that the risk margin is currently “too high and too volatile”. SI 2023/1347 modifies the ‘matching adjustment’, which reduces capital for firms who hold long-term assets with cash flows that match the cash flows of similarly long-term liabilities, to allow a wider range of assets to qualify as matching.
25.Both sets of changes were considered in a 2022 consultation.12 The Government said that almost all respondents agreed that the existing risk margin was “far larger than is necessary” and that the changes being made to the matching adjustment were “strongly supported”. However, HMT also reported that a “central concern” from respondents was how far capital requirements could be reduced without significantly impacting policyholder protection.
26.HMT estimates that the changes will reduce the insurance industry’s costs by around £800 million in the first year and £500 million per year thereafter. However, the Regulatory Policy Committee (RPC) criticised the Impact Assessment (IA), saying these estimates were “insufficiently substantiated” and over-reliant on a single study by consultant KPMG. The key data in the IA has not been amended or improved since the RPC’s opinion.
7 HM Treasury, ‘Outcome of investigation into the FCA’s regulation and supervision of LCF’ (17 December 2020): https://www.gov.uk/government/publications/outcome-of-investigation-into-the-fcas-regulation-and-supervision-of-lcf [accessed 18 December 2023].
8 BBC News, ‘Street drugs stronger than heroin linked to 54 deaths in UK’ (11 December 2023): https://www.bbc.co.uk/news/uk-67589364 [accessed 18 December 2023].
9 2nd Report (Session 2023-24, HL Paper 7).
10 See 3rd Report (Session 2022–23, HL Paper 13).
11 HL Deb, 6 December 2023, cols 1505–1507 [Lords chamber].
12 HM Treasury, Review of Solvency II: Consultation—Response (November 2022): https://assets.publishing.service.gov.uk/media/6375529fe90e072852140498/Consultation_Response_-_Review_of_Solvency_II_.pdf [accessed 18 December 2023].