REUL Britannia: The FCA’s Approach to Replacing EU Law
Following much debate in Parliament, the new Financial Services and Markets Act 2023. Received royal assent in June 2023. The Act significantly changes the UK's regulatory framework for financial services, implementing the government's post-Brexit Future Regulatory Framework Review and the Edinburgh Reforms, with the ultimate aim of delivering a regulatory framework which is tailored to the UK and nurtures innovation in post-Brexit financial services.
In particular, Section 1 of the Act provides for the repeal of reams of EU law relating to financial services and markets which were essentially copied and pasted into UK law following Brexit under section 4 of the European Union (Withdrawal) Act 2018 ("the EUWA").
EU law being reviewed includes:
Insurance Distribution Directive (IDD)
Markets in Financial Instruments Directive/ Regulation (MiFID/MiFIR)
Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation
Payment Services Directive 2 (PSD2) & e-Money Directive (EMD) & Regulations
Prospectus regime
Securitisation Regulation (SR)
This is obviously a huge task that will take time but following recent FCA publications and speeches we have greater clarity on exactly how the task will be undertaken and what the FCA is priorising.
In an update published on its website in July, the FCA set out the core principles it will apply when replacing REUL provisions with rules in the FCA Handbook. These were to:
Consolidate requirements as far as possible so that, over time, the FCA Handbook becomes the ‘one stop shop’ for firm-facing regulatory requirements. Regulatory requirements are currently spread across multiple sources, including retained EU regulations, primary and secondary UK legislation, retained EU technical standards, and regulators’ rules. FCA aim to consolidate and integrate, as far as possible, all regulatory provisions that it is responsible for, into the Handbook.
Use the current Handbook structure, only creating new sourcebooks where necessary. FCA will only create new sourcebooks where necessary: for example, where the requirements are sizable and self-contained enough to warrant a separate sourcebook.
Rely on existing requirements in the Handbook, where relevant, and consider if it is necessary to reflect the repealed REUL provision in our Handbook. If FCA find that existing rules sufficiently overlap with REUL provisions, the REUL could be repealed without replacement. Otherwise, the existing Handbook rules could be modified or extended to adequately replicate REUL provisions without inserting entirely new rules or sections.
Rely on outcomes rather than prescriptive requirements, where appropriate. FCA will likely seek to rely on existing higher-level rules, like the Consumer Duty, that can achieve the same outcome rather than recreate prescriptive REUL requirements.
Reduce complexity, both in drafting style and by seeking to align standards across sectors, where appropriate. FCA’s aim is to draft rules using the Handbook drafting format and style, rather than keeping the language and structure of REUL.
This was recently followed by a speech from Greg Sachrajda (Co-Director of FCA’s Cross-Cutting Policy and Strategy, Supervision, Policy and Competition) in which he urged firms to get involved in helping to shape “what a UK financial services rulebook outside of the EU is going to look like”. Firms are recommended to keep an eye on the FCA webpage for updates to individual files (e.g. consultation papers) as FCA make progress.
It is a genuine opportunity to refresh financial regulation and we at ComplyCraft echo the FCA’s message and encourage our clients to make their voices heard. As AIMA pointed out in its recent feedback, a minor change for some firms could have a monumental impact on others, depending on business model, size and the nature of the requirements etc.
Don't miss this opportunity to voice your opinion on any proposed changes. It is genuinely a one-off and once done, it's unlikely the FCA would review again anytime soon...
If you have any questions on how these developments might affect your firm, please get in touch.