Instruments of interest
Draft Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024
1.This Order would make changes to the regulatory regime for Ring-fenced Banks (RFBs). RFBs were introduced after the financial crisis with the aim of insulating everyday banking services from problems elsewhere in the financial system. Under the regime, large banks must separate their core retail banking services from other activities, such as investment banking, and hold deposits within the RFB specifically to support those core services. There are also limits on the activities RFBs can undertake. There are seven RFBs in the UK with combined deposits of £2.9 trillion.
2.The reforms follow an independent report on the regime (the ‘Skeoch Review’).1 Key proposed changes include:
- Increasing the threshold over which banks must operate the RFB regime, from £25 billion of core deposits to £35 billion. HM Treasury (HMT) says that while this would not remove any firms from the regime, it would reduce barriers to growth for firms currently below the £25 billion threshold, to support competition in the UK banking sector.
- Removing some of the restrictions on the activities RFBs can undertake, where doing so does not risk financial stability. For example, RFBs would be able to make investments in smaller UK companies and funds that invest in them, subject to certain restrictions, and would be able to operate outside the UK and European Economic Area.
- Reducing reporting requirements; for example, removing the need to report exposures to other financial institutions of below £100,000.
3.While the overall direction of the reforms is to allow greater flexibility within the RFB regime, HMT told us that “appropriate financial stability safeguards” remain and that the Prudential Regulation Authority “is content that the package will not prompt a material increase in financial stability risk”.
Draft Short Selling Regulations 2024
4.These Regulations would enable the replacement of assimilated law (previously retained EU law) relating to the regulation of short selling, which is the practice of selling a security that is borrowed or not owned by the seller with the intention of buying it back later at a lower price. HM Treasury states that short selling is “an essential tool to facilitate effective market functioning”, but recognises that it gives rise to risks, which regulation is intended to address.
5.The overall approach, as in other areas of financial regulation, is that Parliament sets the framework for the new regime and empowers the Financial Conduct Authority (FCA) to establish the detailed rules following further consultation. This proposed regulatory framework for short selling includes changes of approach compared to the existing regime, such as:
- Firms that practice short selling would no longer have to publish short positions that exceed 0.5% of the shorted company’s share capital. Instead, the FCA would publish anonymised aggregated net short positions based on all individual position notifications it receives.
- Short selling of sovereign debt would be removed from the regulatory regime, except for powers to intervene in an emergency. The regime would therefore focus on equities alone.
- As now, shares that are principally traded outside the UK may be exempt from various regulatory requirements. However, the approach would change so that the FCA would provide a list of shares that are covered by the regime, rather than (as now) providing a list of those that are exempt. This is intended to make the system more efficient.
Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024 (SI 2024/1139)
6.These Regulations set out the process that must be followed when a local authority in England decides to carry out a high street rental auction using powers that were introduced by the Levelling-up and Regeneration Act 2023 (“the Act”). Under the Act, local authorities may auction lease rights to properties that have been vacant for more than 365 days consecutively or for 366 days or more in a two-year period, against a landlord’s wishes, if the landlord does not take active steps to rent the property and certain other conditions are met. The maximum length of a lease concluded under the policy is five years and the lease must be for a “suitable high street use”. This may be retail, catering or other commercial use, or use by the community, but not residential use.
7.The instrument seeks to address high street vacancy, which, according to the Ministry of Housing, Communities and Local Government (MHCLG), can lead to further economic decline and an increase in anti-social behaviour. The MHCLG refers to estimates which suggest that one in every seven high street shops was closed in the first quarter of 2023.
8.On request, the MHCLG provided a short overview of how the auction process will operate in practice which we have included in Appendix 1. Asked about the expected impact of the policy on vacancy rates, the MHCLG told us that it “could be used on between 5% and 15% of properties in scope though the effect on vacant property is anticipated to be greater as the policy is intended to create a signalling effect where landlords take more active steps to fill vacant property to avoid being in scope”.
9.The MHCLG says that the first auctions could take place from June 2025, and that it will be working with Bassetlaw, Mansfield and Darlington and Bournemouth, Christchurch and Poole councils as early adopters. We welcome that in response to our questions, the MHCLG has revised the Explanatory Memorandum to correct some of the terminology and to include an explanation of the roll-out and expected impact of the policy.
Bread and Flour (Amendment) (England) Regulations 2024
(SI 2024/1162)
10.These Regulations amend the legislation which specifies the requirements for the composition and labelling of bread and flour in England. Amongst other changes, the instrument adds folic acid to the list of substances that must be added to non-wholemeal wheat flour. The aim is to reduce incidences of Neural Tube Defect (NTD) affected pregnancies. The instrument includes exemptions for small-scale producers and introduces new improvement notices to enable more proportionate enforcement. To maintain an element of consumer choice, the new requirement to add folic acid will apply only to non-wholemeal flour made from common wheat, leaving wholemeal flour and flour made from other grains as alternatives.
11.The Department for Environment, Food and Rural Affairs (Defra) explains that NTDs are birth defects of the brain, spine or spinal cord of the foetus which affect approximately 1,000 pregnancies a year in the UK of which around 800 are in England. NTD risk is associated with low levels of blood folate. The compulsory addition of folic acid to non-wholemeal flour is expected to reduce incidences of NTD affected pregnancies by 15-22% per year, preventing around 150-220 potentially life-threatening spinal conditions in the UK, including around 100-210 in England.
12.Defra says that the policy is supported by the Science Advisory Committee on Nutrition,2 and that while this instrument deals with England only, Scotland, Wales and Northern Ireland will make equivalent changes. We commend Defra on a well drafted and comprehensive Explanatory Memorandum and Impact Assessment.
Criminal Legal Aid (Remuneration) (Amendment) Regulations 2024 (SI 2024/1163)
13.These Regulations implement reforms to fees for criminal legal aid lawyers working at the ‘front end’ of the criminal justice system, such as in police stations and the Youth Court. The changes flow from the Independent Review of Criminal Legal Aid,3 and are intended to address “unfairness and perverse incentives that disincentivise practitioners from spending more time on cases where additional attention was appropriate”. The Government also states that the measures will contribute to a “better-functioning and more sustainable” legal aid system, and may also have wider benefits because investment at the early stages of cases can lead to better case management and earlier resolution. The changes include:
- Moving from a highly fragmented fee structure, with 245 different rates across England and Wales, to one with greater harmonisation. This is being achieved by raising fee rates for all but the highest police station fees. The Ministry of Justice (MoJ) told us that its longer-term aim is to move to full harmonisation “when circumstances allow”.
- Creating a separate Youth Court fee scheme with an additional fee for serious cases. This is intended to reduce the disparity between the Youth and Crown Courts and to reflect the seriousness of Youth Court cases, given the impact on the child’s life if convicted.
- Introducing remuneration for travel time for areas with fewer providers and where providers work outside their own area, to help address capacity challenges.
14.The MoJ states that the changes will cost £24 million per year, of which £18.5 million arises from fee harmonisation, £5.1 million from the Youth Court fee scheme and £0.4 million from the travel payments.
1 Ring-fencing and Proprietary Trading Independent Review, Ring-fencing and Proprietary Trading Independent Review: Final Report (March 2022): https://rfpt.independent-review.uk/uploads/CCS0821108226–006_RFPT_Web%20Accessible.pdf [accessed 18 November 2024].
2 Public Health England, Folic acid: updated SACN recommendations (12 July 2017): https://www.gov.uk/government/publications/folic-acid-updated-sacn-recommendations [accessed 27 November 2024].
3 Sir Christopher Bellamy, Independent Review of Criminal Legal Aid (29 November 2021): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1041117/clar-independent-review-report-2021.pdf [accessed 18 November 2024].