“Edinburgh Reforms” signpost significant changes for financial services

On 9 December, the Chancellor of the Exchequer announced a set of reforms to drive growth and competitiveness in the financial services sector. The so-called “Edinburgh Reforms” signpost significant changes for financial services but are they at odds with current FCA attitudes and practices?

The reforms signal farewell to PRIIPs KID, ELTIFs, swathes of MiFID II and possibly even SM&CR, but whether it is more of a flash in the plan than real change, only time will tell…

Certainly, it is clear a lot of work will be required to review legislation which raises the question of ‘how?’ with the FCA still under-resourced.

Even skim reading some of the documents, it is clear government is not necessarily talking the FCA's language. For example, with reference to changes to the prospectus regime, there is a clear reference to expanding the pool of capital to include retail money. This seems at odds with the current FCA attitude to firms offering 'high risk products' to such investors (hint: they don't like it, hence all the new marketing rules and burdensome scrutiny).

And that is without reference to growth and competition recommendations published today. The FCA in recent speeches have suggested they see no issue here between these new objectives and current ones. But let’s take a much-discussed example: the ‘higher standard’ set at the authorisation gateway.

The reality of operational delays, staffing issues and the incredible rise of firms turned away at the gateway (i.e., authorisation) suggests there is a conflict. There is less growth and competition if new entrants cannot get a license, or it takes a year before they can make money. With no external body reviewing the 'higher standard' and with the FCA setting an internal objective to decline more applications, there is an argument the approach is at odd with governments aims (and the new FCA standard is unrealistically high to meet its own targets).

And FCA 'bashers' have suggested the regulator is simply trying to mitigate risks to its own reputation and workload...which is harsh, considering the recommendations in the Gloster report.

No one wants consumers abused by unscrupulous firms, and a robust gateway is critical. But new applicants are not to blame for the vast complexity of rules, application processes and unwritten requirements that are applied.

Will Hunt's changes make a difference? This promises to be an interesting watch...